Glascock v. City Nat. Bank of West Virginia, 30595.

• Decision Date: 09 December 2002
• Docket Number: No. 30595.,30595.
• Citation: 213 W.Va. 61,576 S.E.2d 540
• Parties: Karen H. GLASCOCK and William K. Glascock, Plaintiffs Below, Appellants, v. CITY NATIONAL BANK OF WEST VIRGINIA, Successor-In-Interest to Blue Ridge Bank, Defendant Below, Appellee.
• Court: West Virginia Supreme Court

576 S.E.2d 540

213 W.Va. 61

Karen H. GLASCOCK and William K. Glascock, Plaintiffs Below, Appellants, v. CITY NATIONAL BANK OF WEST VIRGINIA, Successor-In-Interest to Blue Ridge Bank, Defendant Below, Appellee.

No. 30595.

Supreme Court of Appeals of West Virginia.

Submitted October 29, 2002.

Decided December 9, 2002.

James P. Campbell, Esq., Campbell Miller Zimmerman, P.C., Leesburg, for Appellants.

Martin R. Smith, Esq., Joseph K. Reeder, Esq., Roger A. Decanio, Esq., Smith & Thompson, Charleston, John W. Alderman, Esq., General Counsel, City National Bank, Cross Lanes, for Appellee.

McGRAW, Justice.

Appellants William and Karen Glascock challenge the lower court's award of summary judgment in favor of appellee City National Bank (successor in interest to Blue Ridge Bank). Appellants entered into a loan agreement with the bank for a construction loan. Appellants alleged that they were damaged by the bank's failure to disclose an unfavorable home inspection report. The lower court granted the bank's motion for summary judgement on the basis that the bank simply had no duty to disclose the unfavorable report. Because we find under the particular facts of this case that a special relationship arose between the bank and the appellants, which imposed a duty to disclose upon the bank, we reverse.

I. FACTS

In the summer of 1994, appellants William and Karen Glascock entered into a construction loan agreement with Blue Ridge Bank (later bought by successor in interest and appellant City National Bank)¹ for a $150,000 loan so that they could have a new home constructed in Harpers's Ferry. In conjunction with this loan the appellants, on August 11, 1994, signed a document called a "Construction Permanent Commitment Letter," which included the statement, "[i]nspections required with respect to this loan are solely for the bank's benefit; borrowers shall receive no comfort or rights with respect to such inspections or bank's evaluation thereof."

In August of 1994, the Glascocks' first contractor began construction of the house. As is usually the case with matters that reach their ultimate resolution in this Court, things did not go well. As early as September 1994 the Glascocks had concerns about the quality of the construction and made their concerns known to the bank. A memo from the bank suggests that a representative of the bank met with or communicated with the Glascocks and their contractor to discuss the problems with the construction project. The memo reveals that the bank requested a structural inspection of the house by a third party inspector, with the cost of the inspection to be paid out of the proceeds of the construction loan—that is, the bank would pay for the inspection, but out of the money it was already lending the Glascocks. The bank's memo also stated that no work was to be completed (other than some framing work), and the bank would not disburse any funds until the bank had "results from engineers and agreement is reached between [sic] Glascocks, builder, and Blue Ridge Bank."²

The result of this inspection was a report dated October 20, 1994 from a company called Pecora Engineering,³ which revealed many defects in the construction of the house. It appears from the record that both the bank and the Glascocks received a copy of this report. The Glascocks subsequently fired their first contractor in late October 1994. About two months later, in late December 1994, the Glascocks hired another contractor who worked on the house into the summer of the next year.

Although the original six-month term of the construction loan had expired December 29, 1994, the Glascocks and the Bank continued to operate under the original agreement. During the first half of 1995, the second contractor continued work on the house and the Glascocks had several inspections made by a firm by the name of Structural Concepts. Structural Concepts inspected the construction project in January, March, and June of 1995. The resulting reports indicated problems with the second contractor as well. In July 1995, the project, suffered another significant setback when the Glascocks fired their second contractor, with the house not yet complete.

The Glascocks had Structural Concepts inspect the house at least two more times in 1995, in the months of November and December.⁴ In late October 1995, the bank, independent from the Glascocks, hired Robert Lemon of Blue Line Inspections to conduct yet another independent inspection of the home. The aptly titled "Lemon Report," dated November 11, 1995, revealed numerous problems in the home's construction, including serious defects in the house's exterior siding, sub-flooring, and electrical system. The Glascocks allege that, prior to litigation, neither the bank nor Mr. Lemon provided the Glascocks with a copy of this report or ever revealed its contents to them.

It also appears from the record that by the time of the Lemon Report, the bank had already disbursed all or most of the $150,000 loan amount. With the money already disbursed and the original six-month term of the construction loan long expired, the bank proposed a modification agreement that would convert the construction loan into a more traditional loan. The Glascocks approved, apparently after consultation with a lawyer, the conversion of the loan in December of 1995.⁵

The Glascocks filed suit against the bank on February 24, 2000, alleging that the bank should have revealed the contents of the report before inducing them to convert the construction loan into a more traditional loan.⁶ They alleged that the bank had a duty to disclose the report to them, that it breached this duty by not providing them with a copy, and that they were damaged as a result. Specifically they claimed that they would not have agreed to convert the loan, and that they could have avoided many unnecessary expenses by fixing some or all of the problems at an earlier stage. Because the bank did not disclose the report, alleged the Glascocks, they did not discover these problems until later and considerable additional work was performed that would have to be undone to repair the house.

The lower court granted summary judgment in favor of the bank, finding that the bank simply had no duty to disclose the report. Because we find that, under the narrow facts of this construction loan case, that a "special relationship" existed between the bank and the Glascocks, we believe that the trial court erred in granting summary judgment, and reverse.

II. STANDARD OF REVIEW

Our standard of review for a lower court's grant of summary judgment is well established:

"A circuit court's entry of summary judgment is reviewed de novo." Syl. pt. 1, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994). A party moving for summary judgment faces a well-established burden: "A motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law." Syl. pt. 3, Aetna Cas. & Surety Co. v. Federal Insur. Co. of New York, 148 W.Va. 160, 133 S.E.2d 770 (1963).

Mallet v. Pickens, 206 W.Va. 145, 147, 522 S.E.2d 436, 438 (1999). Accord, Antco, Inc. v. Dodge Fuel Corp., 209 W.Va. 644, 550 S.E.2d 622 (2001)

. With this standard in mind, we turn to a discussion of the instant case.

III. DISCUSSION

Among the various theories of liability argued by the Glascocks, we find most persuasive the Glascocks' argument that the specific facts of their dealings with the bank give rise to a "special relationship" between the two parties, and that this special relationship imparted a duty to the bank to disclose the information.

We recently discussed the concept of a "special relationship" in a case where a contractor, doing work on a sewer repair project for the City of Salem, sued the design firm that had developed the construction plans. In Eastern Steel Constructors, Inc. v. City of Salem, 209 W.Va. 392, 549 S.E.2d 266 (2001), the City of Salem contracted with an engineering and design firm, Kanakanui Associates, to draw up plans for a new sewage treatment plant and several new sewer lines. The city later contracted with Eastern to perform some of the sewer line work. Eastern suffered delays and added construction expenses when it encountered unexpected utility lines and underground rock formations in the path of the new line, which had not been revealed in the plans completed by Kanakanui.

Eastern sued Kanakanui, among others, and the lower court ruled in favor of Kanakanui, in part because Kanakanui had contracted only with the city, had prepared the plans for the city, and had not contracted with Eastern. The Court in Eastern reversed the lower court and held that a design professional like Kanakanui owed a duty of care to a contractor like Eastern:

A design professional (e.g. an architect or engineer) owes a duty of care to a contractor, who has been employed by the same project owner as the design professional and who has relied upon the design professional's work product in carrying out his or her obligations to the owner, notwithstanding the absence of privity of contract between the contractor and the design professional, due to the special relationship that exists between the two. Consequently, the contractor may, upon proper proof, recover purely economic damages in an action alleging professional negligence on the part of the design professional.

Syl. pt. 6, Eastern Steel Constructors, Inc. v. City of Salem, 209 W.Va. 392, 549 S.E.2d 266 (2001).

In so holding, the Eastern Court relied upon the case of Sewell v. Gregory, 179 W.Va. 585, 371 S.E.2d 82 (1988), and the basic tort principles espoused therein. In that case the Sewells bought, from the original owner, a four-year-old house built by the defendant contractor. Rainfall caused flooding in the house shortly after the Sewells moved in and they sued the builder. The lower court...